Bressler Risk Blog

New York City: “Judge Must Insulate Clerk Related to District Attorney From Criminal Matters: Judicial Ethics Opinion 26-23” —

• “A judge whose court clerk is a second-degree relative of the District Attorney must disclose the relationship and insulate the clerk from all criminal matters.”
• “The inquiring full-time judge handles ‘primarily criminal cases.’ The judge has been assigned a court clerk who is a second-degree relative of the county’s District Attorney. The clerk is a court system employee assigned to the judge’s courtroom, rather than a personal appointee or member of the judge’s chamber staff. The judge asks if disclosure and/or insulation is required in all criminal cases or only when the District Attorney personally appears, and whether remittal may be available.”
• “Where a judge’s staff member has a conflict,’it is ordinarily sufficient to insulate the staff member and disclose the insulation’ (Opinion 25-123 [citation omitted]). Thus, while the ethics rules do not require a judge to disqualify in a matter based on a court employee’s familial relationships, ‘we may require a judge to insulate the court employee from matters involving his/her own relatives’ by analogy to the provisions applicable to judges (id.).”
• “This applies to ‘pool’ court attorneys as well, who are not personally appointed or even assigned to work exclusively with one judge, but instead perform research and writing for all judges in the court (see Opinion 24-179).”
• “Where a pool court attorney is related by blood or marriage within the fourth degree to the county’s District Attorney, we said the court attorney ‘must be insulated from all criminal matters’ (id.). However, the insulation ‘may be remitted if the judge makes full disclosure of the basis for the court attorney’s insulation on the record, the parties and their counsel affirmatively consent to remit without participation by the court, and the judge is satisfied the court attorney will be fair and impartial’ (id.).”
• “We have recognized that the relationship between a judge and a court clerk is ‘decidedly less close’ than between a judge and his/her personal appointees (Opinion 23-80). Nonetheless, we have advised that a court clerk must be insulated from matters involving his/her close relatives (see Opinions 17-65 [court clerk whose third-degree relative is the village police chief must be insulated from all matters involving the police department]; 14-171 [court clerk whose second-degree relative is an assistant public defender must be insulated from his/her relative’s cases]).”
• “Accordingly, we conclude that a court clerk who is related within the second degree of relationship to the county’s District Attorney must be insulated from all criminal matters.”

“Emails, texts show Denver city attorney pushed for former law firm after insurer rejected it” —

• “A series of internal emails and text messages obtained by CBS Colorado appears to show Denver City Attorney Miko Brown pushing to get her former law firm hired for legal work involving Denver International Airport — even after the airport’s insurance company initially rejected the firm.”
• “The documents — obtained under Colorado’s Open Records Act — show Brown advocating for Wheeler Trigg O’Donnell, where she was a partner for 10 years, after AIG, the insurance company covering Denver International Airport, raised concerns about hiring the firm and initially said it would not do so.”
• “Four days after Brown pushed back against AIG’s decision, the insurance company reversed course and agreed to retain WTO as local counsel to help defend against lawsuits over a May 8 runway death at the airport.”
• “The revelations come as the Denver Board of Ethics investigates two complaints accusing Brown of trying to steer legal business to WTO.”
• “The Ethics Board voted unanimously, 3-0, to investigate both complaints. The vote does not mean the board has concluded Brown violated Denver’s Ethics Code. Rather, the board determined the complaints warranted a formal investigation.”
  Brown’s former law firm”
• “Brown was a partner at Wheeler Trigg O’Donnell from 2007 until 2017. She became Denver’s city attorney in 2025.”
• “The new documents concern legal work that arose after a May 8 incident at Denver International Airport in which Michael Mott, 41, crossed a perimeter fence and entered an active runway. He was struck and killed by a departing Frontier Airlines jet. His death was ruled a suicide.”
• “AIG, which provides insurance coverage for the airport, ultimately retained two law firms to represent Denver in connection with the matter: WTO and a national law firm. AIG, rather than Denver, is responsible for paying the firms’ legal bills.”
• “The newly obtained communications show that Brown was seeking to get WTO involved well before AIG had agreed to hire the firm.”
• “On May 15, a week after the runway incident, Brown texted Kevin Cain, a top lawyer at Denver’s airport. Brown wrote: ‘Trying to get as much info as possible for WTO (Wheeler Trigg O Donnell) ….’ Brown then referred Cain to WTO partner Jessica Scott, describing Scott as: ‘Really perfect.'”
• “Brown subsequently emailed several subordinates, writing: ‘Kevin spoke with AIG who has agreed to let us choose outside counsel. Assuming conflicts clear, Jessica Scott at WTO will handle.'”
• “The email is significant because AIG, rather than Brown or Denver, ultimately had authority to approve the outside law firms for this insurance matter.”
• “Brown later continued advocating for WTO. She wrote to Cain: ‘I should also mention that one of Jessica’s partners..has expertise in aviation-related matters. He’s also a licensed pilot.'”
• “But on June 3, Cain emailed Brown that AIG had raised what he described as an: ‘Apparent or perceived conflict of interest for WTO and they will not retain the firm.'”
• “Brown’s response was: ‘Thats ridiculous..'”
• “The next day, June 4, AIG formally notified Denver that it had selected a national law firm for the case. [Gordon Rees] AIG said WTO did not have the experience.”
• “Three days later, on June 8, the situation changed. Cain emailed Brown saying he had spoken with the city’s insurance broker, which in turn had spoken with AIG.”
• “The documents obtained by CBS Colorado do not explain exactly what happened between June 4 and June 8 that caused AIG to reverse its decision. Contacted by CBS Colorado, AIG has not provided an explanation for what changed its position.”
• “The communications do show the sequence: AIG initially rejected WTO, Brown continued pushing for the firm, and AIG subsequently agreed to retain WTO.”
• “The newly obtained documents are significant because the Denver Board of Ethics is now formally investigating an employee complaint alleging that Brown applied pressure to steer Denver International Airport legal work to WTO. The complaint was filed by an employee of the airport’s legal department who asked to remain anonymous, writing: ‘Miko will punish me.'”

“Korea raises data breach fines to 10% of revenue” —

• “Korea’s privacy regulator is sharply raising the cost of data breaches, aiming to push companies to treat data protection as a preventive investment rather than a routine cost of doing business.”
• “Starting Friday, companies found to have leaked the personal data of 10 million or more people through intent or gross negligence can be fined up to 10 percent of their total revenue as part of a broader overhaul under the revised Personal Information Protection Act that is set to take effect the same day. Even if a leak hasn’t been confirmed, companies must notify users within 72 hours if the risk of exposure is high. “
• “‘Personal data breaches have recently occurred repeatedly and grown in scale in fields closely tied to daily life, such as retail and telecommunications,’ Personal Information Protection Commission (PIPC) Secretary General Yang Cheong-sam told reporters Thursday. ‘We’ve improved the system to hold serious violations strictly accountable while also helping prevent breaches from happening in the first place.'”
• “Companies that invested in data protection beforehand will get credit under the new rules. Regulators will consider the scale and continuity of a company’s investment in data protection budgets, staffing and equipment, along with its broader protection system, including its chief privacy officer, to reduce a fine by up to 40 percent. A company that detects a breach early, reports and notifies users promptly, and prevents the damage from spreading can also receive up to a 40 percent reduction.”

Quick Update on the BRB Risk Compensation Survey:

At this point, we’ve had about 50 participants submit about 350 data points on staff roles and compensation levels. Given that were a bit over the halfway point in collection, we’re down from last year (which saw 100+ participants submit data on about 700 positions).

For those who are not participating — opting instead to purchase a report, or pursue access via a sponsor — I want to note that for the 2026/2027 edition prices for non-participating firms are definitely going up. (And moving forward I may take additional steps in terms of what is and is not included in the baseline report…)

This all works best if everyone contributes. (And I’ve been told the tragedy of the commons is wrong.)

The survey closes end of next week. So, let’s go team risk!

Questions? Need help? Reach out!

Otherwise, take the survey: here.

Thanks. And now back to your regular updates.

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David Kluft asks: “Can I still represent my divorce client after I marry her?” —

• “After a FL divorce, there were post-dissolution proceedings between the ex-Wife and ex-Husband regarding their children. While these proceedings were still ongoing, the ex-Wife married her divorce lawyer. The ex-Husband moved to disqualify the lawyer on the basis that he was now a material witness, although he didn’t actually explain what made the lawyer a material witness. The trial court described the case as a ‘train wreck’ and disqualified the lawyer ‘out of an abundance of caution’ because he ‘may’ have unique information and ‘might’ be called as a witness.”
• “On appeal, the District Court of Appeal invoked 3.7, which the trial court didn’t bother looking at. Rule 3.7 requires disqualification of a lawyer when he is a ‘necessary witness’ at trial. Here the ex-Husband had not sufficiently alleged that he was going to call the lawyer as a witness and why, and he offered no argument as to what information the lawyer had that the ex-Wife did not. Therefore, he was not a ‘necessary witness.’ In addition, the disqualification order was too broad because it disqualified the lawyer from representing the ex-Wife at all, and a Rule 3.7 order should be limited to trial.”
• Decision: here.

“Professional responsibility pitfalls from recent Illinois decisions” —

• “In Ordower v. Dalton, the underlying malpractice allegations stemmed from an attorney’s interpretation of a client’s voicemail as a withdrawal from a business transaction. The claimant argued that the attorney proceeded without adequately consulting the client regarding the client’s actual objectives. An ethics expert opined that such conduct violated Rule 1.4, which requires lawyers to reasonably consult with clients concerning the means by which their objectives are to be accomplished.”
• “The same decision also addressed allegations involving an attorney’s acquisition of an ownership interest in a transaction involving a client. The claimant asserted that the attorney’s personal financial interests conflicted with the client’s interests and that the transaction failed to satisfy the disclosure and informed consent requirements governing business transactions with clients.”
• “Rules 1.7 and 1.8 present recurring malpractice risks because they seek to protect clients from divided loyalties. Plaintiffs’ experts often focus heavily on whether disclosures were adequately documented and whether informed consent was obtained. Even transactions that appear beneficial to all participants can become fertile ground for malpractice allegations when the required safeguards are not strictly followed.”
• “For lawyers and law firms, compliance with these rules should never be treated as a technical exercise. Thorough written disclosures and documented client consent remain the best protection against later claims that personal interests compromised professional judgment.”
• “The allegations in Ordower v. Dalton also advanced claims that the attorney engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation under Rule 8.4. While those allegations remained disputed, the case illustrates how quickly a communication or conflict dispute can evolve into accusations of unethical conduct.”

“PE, Hedge Funds Are Barred From Steering Law Firms in California” —

• “Private equity, hedge funds and litigation funders can’t direct or influence law firms they back, according to legislation California law Governor Gavin Newsom (D) has signed into law.”
• “Newsom signed the state legislation (AB 2305) into law Sept. 20, and it will go into effect in January. It targets alternative business structures and management service organizations — two vehicles that allow non-lawyer investment in the legal space. The bill still allows the practice of non-recourse litigation finance as long as funders do not interfere in the practice of law.”
• “Philippa Balestrieri, a corporate M&A partner at Holland & Knight who works on investment structures in the legal industry, said that the law doesn’t restrict MSOs. Rather, it is a restatement of the same concepts that govern the models.”
• “‘I don’t see this as being a kind of watershed moment for the MSO market in California,’ she said. ‘I see this as, if anything, underlining for outside capital the need to hire competent counsel, hire people who know what they’re doing when they’re structuring your deals.'”
• “The bill Newsom signed was sponsored by Ash Kalra, a Democratic member of the State Assembly whose district encompasses most of San Jose. Newsom last year signed a Kalra measure that bans California attorneys and firms from sharing contingency fees with out-of-state alternative business structures.”

New York State Bar: “Ethics Opinion 1302: Provision of Integrated Legal, Tax, and Financial Planning Services” —

• “An attorney’s provision of integrated legal, tax, and financial planning services would, under Rule 5.7 of the New York Rules of Professional Conduct (the ‘Rules’), very likely result in all of such attorney’s services being subject to the Rules.”
• “In determining whether the Rules apply to the nonlegal services, the key factor is the degree of integration of the legal and nonlegal services (i.e., whether or not the legal and nonlegal services are ‘distinct’ or not ‘distinct’).”
• “Providing these integrated services would require consent, confirmed in writing, to a personal interest conflict but that consent would not permit the attorney to receive commissions or similar separate payments for providing financial planning advice. Whether an attorney should practice in a particular organizational form is beyond this Committee’s jurisdiction.”

Michigan Business Court: “Attorneys – Disqualification. Michigan Business Court” —

• “Where a plaintiff has moved to disqualify a law firm from serving as the defendants’ counsel, that motion should be denied because the plaintiff is neither a client nor former client of the firm.”
• “This matter is before the Court on Plaintiff’s motion to disqualify Warner Norcross + Judd LLP (‘WNJ’) from serving as Defendants’ counsel. …”
• “‘Plaintiff alleges that in late 2024, he, Defendants Richard and Deborah Wranosky (collectively, the Wranoskys), and non-party William Jones organized Defendant BRKS Group, LLC for the purpose of operating Wolf Gym-Utica under a franchise agreement with non-party W.O.L.F. Fitness Gyms, LLC.”
• “Plaintiff argues a conflict of interest exists that precludes WNJ from representing Defendants. According to Plaintiff, John MacKenzie, an attorney at WNJ was BRKS’ corporate counsel as early as October 2025, during which time he ‘provid[ed] legal advice to Plaintiff Jackson directly about his day-to-day service as Manager of BRKS.’ … Plaintiff appears to maintain that he was WNJ’s client, so WNJ’s representation of Defendants here is directly adverse to him. He also argues that MacKenzie is a necessary witness in this case based on ‘MacKenzie’s continual and pervasive involvement in the formation and operations of BRKS, and especially in the dispute that eventually arose between Plaintiff Jackson and the other Defendants.…”
• “‘To support his contention that WNJ represented him as a client, Plaintiff first cites emails from October 2025 (Mot. Ex. 1) and August 2025 (Mot. Exs. 4 and 5.) …”
• “‘None of Plaintiff’s evidence demonstrates that he was WNJ’s client. Instead, it shows that WNJ represented BRKS, which is distinct from its members (i.e., the Wranoskys and Plaintiff). MRPC 1.13(a). Because Plaintiff is neither a client nor former client of WNJ, WNJ’s representation of Defendants is not a conflict of interest.”
• “‘Plaintiff also argues that MacKenzie is a necessary witness in this case, so he is precluded from representing Defendants. This argument also lacks merit.”
• “… Plaintiff has not explained how MacKenzie’s involvement in the formation and operations of BRKS is relevant to this action, nor has he explained how MacKenzie was involved in the dispute between Plaintiff and the Wranoskys such that MacKenzie is a necessary witness. Moreover, Plaintiff has not addressed, let alone demonstrated, that there are no other witnesses who could give the same substantive testimony about the dispute between Plaintiff and the Wranoskys as MacKenzie. Thus, Plaintiff has failed to demonstrate MacKenzie is a necessary witness.”

“Private Law Firm Stipend Does Not Bar Judge From Hiring Law Student as Intern: Judicial Ethics Opinion 26-65/26-66” —

• “Digest: A judge may hire as a summer intern a law student who will receive a stipend from a private law firm for any public service internship that summer, provided the judge (1) insulates the intern from any cases in which the law firm appears and (2) discloses the insulation and the basis for it. Assuming the judge concludes, in his/her sole discretion, that he/she can be fair and impartial in matters involving the law firm, the judge may preside after such insulation and disclosure.”
• “Rules: Judiciary Law § 14; 22 NYRR 100.2; 100.2(A); 100.2(B); 100.3(C)(2); 100.3(E)(1); Opinions 25-24; 22-181; 15-14; 13-80.”
• “Ordinarily the ‘decision whether to engage a student intern is within the discretion of the judge and does not generally raise ethical concerns’ (Opinion 25-24). Here, the question presented is whether a trial court judge may hire a law student for a summer internship, given that a law firm has hired the law student for a paid summer internship the following summer and has offered the law student a $25,000 stipend as an incentive for taking a public service internship this summer. In our view, it is significant that the stipend is not targeted specifically to a judicial internship, but would apply equally to other public service internships or even, potentially, internships with for-profit entities aligned with the law firm’s practice areas.”
• “In Opinion 22-181, we said that a trial court judge may hire a law student for a judicial internship for academic credit ‘while the student is simultaneously employed part-time in a non-legal paid position at an investment bank which has cases before the judge.’ Moreover, we said that, assuming the judge can be fair and impartial, ‘the judge may still preside in cases involving the bank, but must disclose to the parties the student’s relationship with the bank and insulate the student from those cases’ (id.; see also Opinions 15-14; 13-80). In our view, the same principles apply here.”
• “Accordingly, the inquiring judges may hire the law student interns, provided they insulate the interns from any cases in which the sponsoring law firm appears and disclose the insulation and the basis for it. Assuming the judge can be fair and impartial in matters involving the law firm, which is a matter left to the judge’s sole discretion, the judge may preside after insulation and disclosure. The obligation to disclose ends when the judicial internship ends.”

David Kluft asks: “Can I partner with an ABS if my state doesn’t allow them?” —

• “An Alternative Business Structure (ABS) is essentially a law firm owned in part by non-lawyers, which is a no-no in most states but not in AZ. SC does not allow ABS structures, but an AZ ABS wanted to find a SC lawyer to take SC lawyer cases. The deal would be that the ABS finds the clients, then gets local counsel to do most, if not all, of the legal work. The local counsel shares the fee with the ABS and, by extension, it’s non-lawyer partners.”
• “The SC Bar, with reference to other opinions in TX and MD, put the kibosh on this arrangement. Rule 5.4 prohibits fee sharing with non-lawyers. The opinion went out of its way to warn the ABS that slightly tweaking the payment arrangement will not help: “the manipulation of the method of effectuating the split between Lawyer and … and ABS … is irrelevant.”
• “The whole ABS thing was pitched to regulators in the same way for-profit entities always attempt to convince us to diminish ethical regulation: they promise that allowing brilliant entrepreneurs to innovate will lead to ‘access to justice’ (because we all agree venture capitalists have done so much more than lawyers to protect civil rights for the poor, right? Right??). If local counsel does all the work and just pays a fee to the ABS afterwards, the ABS is not an innovative law firm. It is instead is nothing more than an affiliate marketer, using its considerable resources not to innovate, but to leech online leads for local cases away from local lawyers and then take a cut off the top while doing nothing.]”
• Opinion: here.

“Law firm Quinn Emanuel wins fight over role in data center case” —

• “Law firm Quinn Emanuel can continue representing a steel plate manufacturer suing Bitdeer Technologies over a data center project in Ohio after a judge denied the cryptocurrency miner’s bid to disqualify ​the firm based on its prior legal work for Bitdeer.”
• “The firm is ‘on both sides of the‘v’in matters involving the same business group.’ Bitdeer said, arguing that Quinn obtained ‘confidential financial ​and operational information’ in the ​New York case that ⁠is relevant to the Ohio litigation.”
• “In her ruling, Judge Julie Selmon of the ‌Court of Common Pleas in Monroe, Ohio this week said Bitdeer had previously waived its right to object to Quinn Emanuel Urquhart & Sullivan taking on cases against it.”
• “Quinn Emanuel’s client, American Heavy Plate Solutions, alleges in the Ohio lawsuit that Bitdeer and ​other defendants are pursuing a data center project in violation of American Heavy’s lease rights. The ​law firm is simultaneously representing Bitdeer in federal court in New York in unrelated litigation.”
• “‘Replacing ⁠Quinn Emanuel would impose material duplication, delay and substantial expense that would prejudice AHP’ in the Ohio case, Selmon ​wrote in her Sept. 8 order.”
• “Quinn Emanuel in a statement on Friday said it welcomed the judge’s ruling. ‘While adversaries often seek to disqualify us for tactical reasons, we have a robust and principled process for vetting potential conflicts,’ the firm said.”
• “The Ohio judge’s ​ruling comes amid a spate of legal fights in which Quinn Emanuel has fought claims that it has a ​conflict of interest and should be disqualified. Judges in at least three recent cases have disqualified the firm due to conflicts. Quinn Emanuel in those ‌cases ⁠denied the firm had violated conflict-of-interest rules.”

“Omnis Energy: Judge Disqualifies HSF Kramer from Representing Pleasants Power Station in Bankruptcy Case” —

• “The U.S. Bankruptcy Court disqualified HSF Kramer from representing Pleasants Power Station in Chapter 11, sustaining objections raised by Omnis Fuel Technologies and the Office of the United States Trustee and denying the retention application.”
• “‘Applying an objective standard, I conclude that Kramer’s prior representation of TRAG gives rise to an actual conflict of interest, precluding its retention by the Debtor,’ Owens said. She called Kramer’s work for the Debtor on TRAG’s cash collateral and related protections, stipulations and releases ‘a glaring example of the conflict.’ TRAG, led by celebrity motivational speaker Tony Robbins, and affiliate RG Energy are Pleasants’ largest asserted creditors and hold substantial interests in its parent companies.”
• “Owens also found that Kramer possesses relevant client confidences it cannot reveal. Even if the conflict were only potential, she ruled, Young Conaway could not adequately resolve it without ‘unnecessary confusion, inefficiencies, distraction and distrust.'”
• “Owens expressed ‘grave concerns’ about the original decision of the Debtor’s independent manager to hire Kramer when the firm was already providing services to TRAG. ‘Nonetheless, I have no choice,’ she said. ‘Kramer cannot be retained under Section 327.'”
• “Young Conaway remains in place as the Debtor’s Delaware co-counsel. It had been designated to serve as conflicts counsel on matters Kramer could not handle. Owens said she was confident that ‘Young Conaway or any appropriate replacement co-counsel’ could transition into Kramer’s broader role ‘quickly and efficiently,’ so that ‘this early stage proceeding will not be disrupted.'”
• “The decision does not remove Houlihan Lokey as the Debtor’s investment banker for the West Virginia power station’s sale or alter the sale calendar. On September 3, Owens said, ‘I want the parties’ laser focus on the sale process,’ and would not jeopardize ‘the integrity of that process or undermine the bidders and their attention to this.'”
• “Omnis supported Houlihan’s retention and will cooperate in developing qualified bidders. Houlihan and current management administer the process, subject to fiduciary duties, consultation and Owens’ oversight. Omnis/Quantum and TRAG/RGE have equivalent consultation-party rights; TRAG/RGE separately assert lender, lien and credit-bid rights.”

David Kluft asks: “What happens if the judge I’m appearing before is in my fantasy football league?” —

• “A judge asked the NY Advisory Committee in Judicial Ethics if judges are permitted to appear in an online fantasy football league with attorneys who might appear before them. The league involved low stakes ($20-$100), no in-person events, and was comprised of the judge’s former colleagues (i.e., other lawyers).”
• “The Committee thought participating in the league was fine and did nothing to diminish the court’s integrity or impartiality, especially in light of a court decision that interactive fantasy sports were “skill-based” and not prohibited by state gambling laws.”
• “If another member of the league appears before the judge, the judge will have to decide whether the relationship with that person is close enough to require recusal. However, the mere fact that a lawyer appearing before a judge is an “acquaintance” (a defined term in the rules) in the same fantasy sports league is not sufficient to require disqualification or even disclosure of the relationship, provided the judge can be fair and impartial.”

“Hacked On Thursday, Disqualified On Friday: BigLaw’s Information Problem Gets A Face” —

• “There is no causal link between the two events. That is precisely why they matter. Quinn Emanuel Urquhart & Sullivan had the sort of week that gets discussed at partner retreats for years, through gritted teeth and very painful memories.”
• “On Thursday 3 September, Reuters reported that Quinn Emanuel and McDermott Will & Schulte had both suffered data breaches, both traced to social engineering, both notified to law enforcement. Quinn Emanuel’s incident, dated 14 August, involved what the firm described as unauthorised access to stored files in a single software application through one temporarily compromised user account.”
• “Among the files exposed: documents relating to short seller Muddy Waters, obtained by the firm in a Florida lawsuit. McDermott told the Vermont attorney general its exposed files included Social Security numbers and health data, and characterised the incident as isolated, involving a single user and a limited number of documents.”
• “Roughly thirty hours later, a federal court in the Western District of Texas disqualified Quinn Emanuel from representing Techtronic Industries in its defamation suit against Muddy Waters, finding the firm had obtained relevant confidential information during its earlier representation of Muddy Waters in a related government investigation.”
• “The same firm, the same adversary and the same underlying commodity, which was other people’s secrets.”
• “The two events are legally and factually unconnected. The breach was a criminal act by an outside party. The disqualification was a judicial finding about internal conflict management.”
• “A modern global litigation firm is, functionally, a warehouse of confidential information that happens to bill by the hour. Deal documents, regulatory correspondence, investigation files, board minutes, personal data belonging to people who have never heard of the firm and never consented to it holding anything. Firms have spent fifteen years industrialising the acquisition of that material. Lateral hiring brings in partners with client relationships and, inevitably, with knowledge. International expansion multiplies the jurisdictions in which the material sits and the regulatory regimes that govern it.”
• “Document review platforms, matter management systems, e-discovery vendors and now generative AI tools each add a place where the material is copied, indexed and stored. What has not scaled at anything like the same rate is governance and control over that material.”
• “Conflict systems at most large firms remain a database query, a circulated email and a partner’s judgment about whether a prior matter is ‘substantially related.’ The plain fact is that is not enough.”
• “Two different failure modes, one root cause. The firm knows more than it can track.”
• “Cyber incidents attract the headlines because they involve criminals and Social Security numbers. But for a litigation firm, disqualification is the more directly painful event.”
• “A breach produces notification costs, regulatory correspondence, class action defence and reputational damage… Disqualification is different. It removes the firm from a live, high-value matter, hands the client a fee dispute and a transition problem, and creates a written judicial finding about the firm’s ethics that opposing counsel will cite for years.”
• “Quinn Emanuel disputes the conflict characterisation, saying it was a single attorney briefly represented Muddy Waters on a different matter, and it denies the conflict allegations. Firms are entitled to that position, and disqualification orders are frequently contested. And obviously nothing about a disqualification finding establishes misconduct.”
• “What it does establish is that a court, looking at the firm’s own records, reached a different conclusion about substantial relationship than the firm’s conflict process did.”
• “Three implications for anyone running a large firm.
  • “Lateral due diligence is now an information governance exercise, not a revenue exercise. The question is not only what book of business a partner brings, but what confidential information arrives with them, from whom, and under what undertakings. Engagement letters from prior firms containing non-use covenants do not disappear when the partner moves.”
  • “Conflict systems need to model relationships, not just names. A query that returns ‘no current matter’ for an entity misses the substantially related prior engagement, the affiliate, the fund, the acquired subsidiary. Muddy Waters is not a large organisation. If a firm’s system can miss that, it can miss anything.”
  • “Security failure is now a client-relationship event, not an IT event. Outside counsel guidelines from sophisticated in-house teams already impose security requirements. Expect them to get sharper, to include audit rights, and to include termination triggers. A general counsel who reads that a firm’s entire document store was reachable through one compromised account will ask what else is reachable.”
• “Large firms sell judgment about risk as they advise on breach response, on privilege protection, on information barriers and on the management of conflicts in complex corporate structures. They are, in principle, the people best placed to get this right.”